Starbucks, I Take My Coffee Black

The sign for a Starbucks Coffee shop is seen in New York on April 17, 2018, following the company's announcement that they will close more than 8,000 US stores on May 29 to conduct 'racial-bias education' following the arrest of two black men in one of its cafes. / AFP PHOTO / HECTOR RETAMAL (Photo credit should read HECTOR RETAMAL/AFP/Getty Images)

For Starbucks, a company that has had its mix of praise and criticism for its proactive stance on addressing race relations in the U.S. with its Race Together campaign, it is ironic that it now finds itself embroiled in a racially motivated backlash that has gripped the company, including calls for boycotts. Following the unfortunate, filmed and wrongful arrest of two black patrons, Rashon Nelson and Donte Robinson, in an all-too-familiar scene at a Starbucks store in Philadelphia, the company has perhaps disproportionately decided to shut 8,000 of its U.S. establishments on May 29 for racial bias training. What this case demonstrates in the reactionary era we are living in, etched by deep social and political fissures bordering on tribalism, is that intangible threats affect business continuity tarnishing the veneer of corporate reputation and pushing back the lines of social responsibility efforts.

Starbucks, particularly under the leadership of Howard Schultz, now the company’s executive chairman, is among a growing number of firms that can be characterized as corporate activists. They join the ranks of firms like Apple, Salesforce, and Chick-fil-A, among others, that have staked their claim on an often controversial social or political position, such as race relations, gender relations, campaign finance, religion and national security, among other issues. This rise of corporate activism flies in the face of traditional norms that the only role of a corporation and its executives is to enhance shareholder value in a socially agnostic manner. Trickledown economics, or so the theory goes, will take care of the rest for the betterment of society. Scandal after corporate scandal conspire with a marked erosion in institutional trust to challenge these norms. In short, people expect more from their public and private institutions (and occasionally their baristas) and Starbucks is only the latest firm to confront these challenges.

Whether they like it or not, boardrooms and the C-suite are facing growing pressure to demonstrate to their stakeholders and society writ large that their value systems are not meaningless words on a wall or annual report, but rather important pillars they will stand on when challenged. In short, values matter most when it is least convenient. Far too many firms and their shareholders are learning costly lessons about reputation risk management and the corporate trust deficit. Indeed, many a shareholder can watch the erosion of value in real time as executives are beamed around the world in split screen newscasts – on one side showing the defendant corporate leader facing an inquisition. On the other, their firm’s share price movements. Increasingly, this pantomime theater is taking place in largely ineffectual hearings on Capitol Hill, where Mark Zuckerberg was the latest CEO to defend his crestfallen organization, where many lawmakers proved they do not know the basics of governing in the technological age, let alone regulating it. If trust and alignment with market expectations are the new currencies of business, how will corporate governance and leadership evolve when we appear to be so thin-skinned as a society and so skittish as institutions? Everyone armed with their iPhones waiting for a scandal to unravel and a person to misstep is an Orwellian form of social policing.

Starbuck’s potential overreaction is not the first of its kind. Chipotle followed a similar course in 2016 following an outbreak of foodborne illnesses in some of its stores, when it decided to close 1,600 locations across the U.S. Since, Chipotle has struggled to recover despite many measures, including free meals and loyalty programs to lure back lost customers. Indeed, echoes of the E. coli outbreak still linger until today and the company’s stock price reflects this market apprehension. Starbucks and its response to this challenge now creates a pattern in which the market begins to expect similar decisions following any type of corporate scandal or pressure. Taking this example further, should United Airlines have grounded all flights following the tragic case of Dr. David Dao? The airline ferries more than 143 million people around the world in general safety, notwithstanding the discomforts of modern air travel. Totally avoiding one of the world’s systemic airlines to not face the highly unlikely fate of Dr. Dao may be impossible, unless you never travel by plane again. Waiting in a coffee shop without being arrested, like walking in a retail store without being followed, are sadly difficult if you are black in America. This is not Starbuck’s problem to fix, but rather the society’s.

Just because many of these events are now being filmed and immediately broadcast around the world, does not mean they are endemic and occurring in every Starbucks location. Not every Starbucks nor every Starbucks employee has the misjudgment exhibited at the Philadelphia store. No more than every security guard working for United or other airlines, has the inability to temper themselves. In short, people are fallible and large enterprises, notwithstanding their lofty mission and value statements, can be brought to their knees by this fallibility. Especially if reactions to crises are not immediate, sincere and proportionate.

In Facebook’s case, following an uncomfortable period of silence, rather than turning to his own platform and Facebook Live to issue a personal apology to his more than 2.2 billion monthly active users, Mr. Zuckerberg followed a reflexive pattern of corporate crisis communications. Shielding himself and his firm behind the often-anodyne messaging of public relations firms, which was to wait to allow perceptions to linger before beginning an apology tour. What these cases demonstrate is that businesses, institutions and people are fallible, yet customers, investors and lawmakers expect better. The optics of shutting down every store is that what is and should be treated as an exception, may very well be a rule in every Starbucks in the U.S., which is clearly not the case. Just as foodborne bacteria contaminating every Chipotle is implausible, the overreaction sent an irreversible market signal making trust difficult, if not impossible to regain.

Perhaps Starbucks and other firms should take the lessons learned from Le Pain Quotidien, which had a field mouse incident where a customer found a dead pest in her salad. Rather than shut down every store in the country, or get embroiled in costly law suits or overreactions, the CEO, Vincent Herbert, came out apologetically asserting that one of the business risks in providing pesticide-free, farm-to-table food is the occasional pest will creep into the supply chain. This incident has been long forgotten and Le Pain Quotidien continues to thrive. Clearly, equivocating complex issues like race, customer and food safety is impossible. Where they are all related is in their effect on corporate reputation and trust. While admirable, for Starbucks to carry the weight of mending race relations in a deeply divided America is a burden too heavy to carry.